business

A company with ties to one of Minnesota's wealthiest and most notable business families has sued Minnesota over ethanol subsidies it claims the state reneged on.

At the center of the case, along with considerable political sparring, is the controversial Gopher State Ethanol plant, which opened in 2000 at the historic Jacob Schmidt Brewery and closed there in bankruptcy four years later. It resurrects the memory of the first urban corn ethanol plant, whose brief existence was marred by financial struggles and neighborhood complaints of noise and foul odors.

BHGDN filed suit Monday in federal court seeking payment of the subsidies and damages. The suit doesn't name the owners of BHGDN, but state filings show it has the same address and phone number as Tonkawa, the office of the Carlson family, owners of the Minnetonka-based travel, hospitality and marketing conglomerate, Carlson Companies.

GDN Holdings, chaired by Glen D. Nelson, married to Marilyn Carlson Nelson, is at the same address. Nelson, along with longtime investor and area businessman Bruce Hendry, were investors in the Gopher State plant.

Brewery land is being sold

BHGDN is also selling the 15-acre brewery property near the Mississippi River, in a deal expected to close this fall. Calls seeking comment to the company's office were not returned. Attorneys for the company declined to discuss its executives.

According to the complaint, Gopher State Ethanol opened in 2000, counting on Minnesota's promise of a 20-cent-a-gallon subsidy to ethanol producers to pay for startup costs and later some improvements after the noise and odor complaints. But by 2003, the state determined it could afford only 13 cents a gallon, so it deferred the 7-cent deficiency, essentially giving all producers IOUs for the money.

That subsidy cut and rising production costs sent Gopher State into bankruptcy in August 2004. It listed debts of $36.8 million and assets of $12 million.

The bankruptcy court awarded the deferred deficiency payments to its financial backers, as secured investors. Eventually, those backers sold the rights to those payments for an undisclosed sum to BHGDN.

The filing also alleges that Gopher State's unsecured creditors -- many of them corn farmers, grain elevators or others involved in corn production -- complained to their legislators that they got nothing in the bankruptcy settlement.

That led to the passage in May of a law eliminating all future distributions to BHGDN -- not by name but by this description that fit no other ethanol producer: "an entity that no longer produces ethanol on a commercial scale at the location for which the entity qualified for producer payments, or to an assignee of the entity."

The suit further alleges that the new law also "expresses the State's desire to provide compensation to Gopher State's unsecured creditors."

Balancing the budget

News accounts at the time called the legislation partially an effort to cut the state's budget deficit, with estimates putting the subsidies promised to Gopher State at $2.1 million.

Also named as defendants in the suit are two Minnesota Department of Agriculture executives: Commissioner Gene Hugoson and Finance Director Steve Ernest. The Agriculture Department administers the subsidies.

"The department's position is that we are following legislative intent," by not making the payments, spokesman Mike Schommer said Wednesday. "If we get direction from the courts to the contrary, we will follow that."

H.J. Cummins • 612-673-4671